What is Fintech in Banking?
The term Fintech is derived from the combination of Financial Services and Technology. Hence, the full form of “Financial Technology”.
Fintech was originally used in the back end systems of the financial institutions and banks. It facilitates the use of digital technology to enable the traditional banking services at your fingertips.
The whole idea of Fintech is to automate financial services and to help users better manage their finances at their convenience. To give you an example - Paypal, Paytm, all the online banking applications and wallets are some of the Fintech companies.
How is Fintech Disrupting Traditional Banking?
Fintechs in Banking is thriving rapidly due to its wide range of offerings that come with convenience.
With the increase in the number of frauds, nowadays people are switching to Fintech as it allows automation with transparency. People have started to prefer mobile banking over the traditional in-person method of banking.
Fintech has made several important and daily required documents handy, which is saving customers time from long queues.
So, how is Fintech exactly disrupting Traditional Banking?
Better customer service
With the growing advancements in technology, customers expect more from their banks than just products and services. Customers are inclined to Fintechs because it focuses on better customer experience as compared to traditional banking, which focuses only on hooking customers by providing a variety of products and services.
A chatbot is an interactive artificial intelligence(AI) application used to streamline and make the customer service process efficient-Another disruptive tool.
Fintech is using a customer-oriented approach- automation, transparency, and flexibility; as its competitive advantage over the traditional banking system.
Use of Numerous Communication Channels
While the traditional banking system had ample branches and helplines as a medium for communication with customers, Fintechs uses numerous channels for communication with customers.
Establishing a mobile banking app was one of the major disruptive moves by Fintech.
Followed by the introduction of UPI which has completely changed the game for banking.
Due to these newly created communication channels, Fintech’s reach has increased tremendously.
Fintech is loved by tech-savvy teens who are the major reason for its mouth publicity.
Banking systems must stay relevant for younger generations with time. And this generation is all for convenience at their fingertips.
Quicker and better solutions
There are so many services that are readily available now like:
- Bank Statement
- Application and Reissue of Debit card and Credit card
- PIN generations for cards
- Account balance check
- Updating KYC
- Bill Payments
- Investment Options
- Fund Transfer
For queries, technologies like chatbots help in acing the process.
Fintech Revolution in Banking
There are several shortcomings in the current banking system that has led to the successful emergence of Fintech in banking.
To name a few:
- Lack of innovation and investment in it
- High costs of operations
- Highly regulated banks leading to too many compliance norms
- Low involvement of customers in the operations of banks
- Difficult to apply any major changes to the already built banking structure since a while ago.
Fintechs focuses on providing one single product or service exceptionally with low operating costs and the best customer experience possible. PayPal and GooglePay are examples of money transfer applications.
Banks should realise the need to equip themselves to remain relevant to the fast-evolving younger customer base.
Banks should highly consider reallocating their investments to compete with Fintechs in areas like:
- Technologies that help them in digital transformation
- Bettering Customer Experience
- Integrating Fintech ideas without collaborating with them by leveraging their strengths.
Traditional and conservative banking must consider collaborating with Fintechs as it can provide them with some high-yielding results.
According to the “Fintech revolution in banking: Leading the way to Digital”, a report issued by Infosys, the following are some major results:
- Safe and secured transacting – Banks have the required financial information of the consumers in their database. They could partner with Fintech firms to use their cutting-edge technology and still continue to be the transaction authenticating authority, to ensure safety and security in all transactions.
- Wide range of products and services – Banks in partnership with Fintechs can explore providing a wide range of products and services to their customers. This will attract new customers and allow banks to face cut-throat competition in the market.
- Venture in new alternate businesses – Banks collaborating with Fintechs will strengthen confidence in merchants operating in a variety of businesses and be connected under one umbrella to reap the benefits of collaborative business. Consumers will pay a lower price than earlier due to a cut down on business channels and costs associated with it.
- Transacting at ease – The bank consumers will be at an advantage to transact using the latest technology and save on transaction time, efforts, and money. Banks and Fintechs will also benefit in terms of high transaction volumes with a low operating cost within a short duration of time.
- Discounts and offers – Due to a low operating cost and high transaction volumes, banks in partnership with Fintechs will be in a position to provide their consumers with a variety of offers that can attract new customers and retain the existing customer base.
- Rate of return – It will be a win-win situation for banks and Fintechs due to such collaboration and the rate of return on investment will mostly be higher, in the long run, considering high volumes and a low operating cost.
- Regulatory support and government incentives – Most of the governments and regulators in developed and developing countries are supporting and relaxing the regulations to promote technology in banking and financial markets. Both banks and Fintechs can leverage this support and relaxation by collaborating to their mutual advantage.
To read the whole report issued by Infosys, click here
How are Banks Responding to Fintech?
Fintech has proven to be the disruptor of the traditional banking system. They changed users from internet banking to mobile banking proving to be a digital threat for the current traditional banking.
Banks are trying to cope with this threat by implementing various strategies to their defence. Some have succeeded while some are still struggling and figuring it out.
Different banks are reacting differently to this situation but they can be grouped into five broad categories according to their defensive strategies adopted.
To learn the five ways in which banks are responding to this digital threat, read here
Banks Behind the Fintech
Collaborating with Fintechs is a win-win situation for both in the Financial industry.
Fintechs provide convenience, transparency, and low costs whereas traditional banks have regulatory know-how, infrastructure, and customer trust.
If the strengths of both industries combine, it can develop synergies that will benefit both of them.
There are few banks behind the Fintechs responsible for its boom.
To discover which are the banks behind the Fintechs and how it helped the Fintech industry in banking, read more
Impact of Fintech on the Future of Banking
Fintech has had a huge impact on the traditional banking system and will continue to do so in the near future.
It will make open banking accessible which will lead to more offerings and choices for clients. According to Wikipedia, “Open banking is a financial services term as part of financial technology that refers to The use of open APIs enables third-party developers to build applications and services around the financial institution. Greater financial transparency options for account holders ranging from open data to private data.”
Smaller banks will also try to jump into the train of Fintech to survive in the financial sector.
Lending will become easier and quicker as compared to traditional lending.
Regulatory authorities will likely announce incentives in compliance norms to promote the use of technology and to help banks adopt the new era.
To read how Fintech impacts the financial system and financial services, click here
Let us know your views in the comment section below.
To read more Fintech-related blogs, refer to the links attached below:
Can Fintech Ever Replace Banks in the Future?
Fintech’s boom has been the talk of the town for some time now while has raised several questions on the survival of banks. To find out if Fintech will ever be able to replace banks in the future, click here
Great Fintech Writers To Add In Your Reading List
To educate yourself about Fintech and to keep yourself updated with the Fintech industry, there are few great writers that you can follow. Find out
Do You Know What is Regulation D?
The Federal Reserve has made changes to Regulation D, which explains how much money Financial Institutions need to keep in hand compared to the total amount they owe to their depositors. Read more
We, at OpenGrowth, are continually looking for trending startups in the ecosystem. If you want to know any further information about the startup ecosystem or have any mind-boggling ideas, do refer to the other blogs at OpenGrowth. If you have any suggestions, do let us know in the comment section below.